Experts criticise 'knee-jerk' changes on non-domiciles as unworkable

By Grace Taylor

12:01AM BST 21 Jul 2008

Non-domicile tax rules outlined in the Finance Act 2008, which is due to receive Royal Assent today, are unworkable in their current form and should be subject to wider consultation before being introduced, say leading tax experts.

Analysts at UK accountancy firms Grant Thornton and PricewaterhouseCoopers say non-dom rules have been rushed through as a political knee-jerk reaction without regard for key stakeholders' views.

Mike Warburton, senior tax partner at Grant Thornton, said that as preceding rules had been in place since 1799, major work should have been done to overhaul the legislation.

Instead, he said, the changes had been rushed through in reaction to claims from shadow chancellor George Osborne that a Conservative government would ease inheritance tax and stamp duty burdens by raising £3bn in taxes from non-domiciled residents.

"If you're going to change the system you shouldn't do it as a knee-jerk reaction to something said by the shadow chancellor," he said.

John Whiting, a tax partner at PwC, said there is no clarification on how non-dom remittances will be treated for tax purposes.

It is also not clear whether there will be penalties for those unwittingly breaking the rules while these issues are ironed out, he said.

"This is not the way to do tax legislation," Mr Whiting added. "It needs proper consultation to make sure everybody knows how the rules are going to work before they come into effect."

Mr Whiting also said that new HM Revenue & Customs powers, allowing the Government department to carry out tax inspections on businesses with no prior warning, are a cause for concern because guidance on how the powers will be used is yet to be issued.

Meanwhile, a survey of accountants and tax specialists carried out by CCH, a Wolters Kluwer business, has found a rise in small business corporation tax is one of the most unpopular provisions outlined in the Finance Act.

Last year the rate stood at 20pc, but rose to 21pc in the current financial year and will increase to 22pc next year.

CCH executive director Martin Casimir said this was considered to pose a threat to the economy as small businesses are regarded as "prime engines of growth".